The financial transaction services industry is well positioned to gain due to the widespread adoption of contactless payments, the rise of e-commerce, and changing spending trends.
Visa Inc. (V) operates as a financial transaction services company that helps facilitate digital payments among consumers, merchants, financial institutions, businesses, strategic partners, and government entities.
It operates VisaNet, a transaction processing network that enables authorization, clearing, and settlement of payment transactions. In addition, the company offers card products, platforms, and value-added services. It provides services under Visa, Visa Electron, Interlink, VPAY, and PLUS brands.
Despite the macroeconomic uncertainty, exchange rate headwinds, and the business suspension in Russia, V surpassed consensus EPS and revenue estimates in the last reported quarter. Its EPS beat analyst estimates by 13.3%, while its revenue came 2.9% higher than the consensus estimates.
The company reported strong payments volume, cross-border volume, and processed transaction growth in the last reported quarter. V’s payments volume increased 12% year-over-year while total cross-border volume rose 40% year-over-year. Its processed transactions also rose 16% year-over-year in the last reported quarter.
Cross-border travel volume surpassed 2019 levels for the first time since the onset of the pandemic. V’s Chairman and CEO, Alfred F. Kelly, Jr., said, “While the economic outlook is unclear, we remain confident in our ability to execute with discipline and expand Visa’s role at the center of money movement.”
V’s stock has declined 7.4% in price year-to-date and 12.4% over the past year to close the last trading session at $200.71.
Here’s what could influence V’s performance in the upcoming months:
Robust Financials
V’s net revenues increased 18.7% year-over-year to $7.28 billion for the third quarter ended June 30, 2022. The company’s non-GAAP net income increased 29% year-over-year to $4.20 billion. Its non-GAAP EPS came in at $1.98, representing an increase of 33% year-over-year. Also, its operating income increased 2.1% year-over-year to $4.14 billion.
Favorable Analyst Estimates
V’s EPS for fiscal 2022 and 2023 is expected to increase 25.7% and 13.1% year-over-year to $7.43 and $8.41, respectively. Its revenue for fiscal 2022 and 2023 is expected to increase 20.7% and 11.3% year-over-year to $29.09 billion and $32.40 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters.
Higher-than-industry Profitability
In terms of trailing-12-month gross profit margin, V’s 97.33% is 93.4% higher than the 50.33% industry average. Likewise, its 70.47% trailing-12-month EBITDA margin is 440% higher than the industry average of 13.05%. Furthermore, the stock’s 51.99% trailing-12-month net income margin is significantly higher than the industry average of 4.25%.
POWR Ratings Show Promise
V has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. V has a B grade for Quality, in sync with its higher-than-industry profitability.
It has a B grade for Sentiment, consistent with favorable analyst estimates. Furthermore, it has a beta of 0.90, justifying its B grade for Stability.
V is ranked #7 out of 48 stocks in the Consumer Financial Services industry. Click here to access V’s Growth, Value, and Momentum ratings.
Bottom Line
Despite the various headwinds plaguing the industry, V reported strong growth in its payments volume, processed transactions, and cross-border volumes. The company is well positioned to benefit from the growing popularity and acceptance of digital and contactless payments.
Given its strong financials, favorable analyst estimates, and higher-than-industry profitability, it could be wise to buy the stock now.
How Does Visa Inc. (V) Stack Up Against its Peers?
V has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Consumer Financial Services industry with a B (Buy) rating: EZCORP, Inc. (EZPW), Regional Management Corp. (RM), and Atlanticus Holdings Corporation (ATLC).
V shares fell $0.50 (-0.25%) in premarket trading Friday. Year-to-date, V has declined -6.89%, versus a -15.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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